Caley Ocean Systems Ltd case study

Caley Ocean Systems Ltd case study

Caley Ocean Systems Ltd is a specialist in offshore handling systems for the oil and gas industry, offshore renewable energy, as well as oceanographic science and research. The company also builds rescue boat handling systems and naval rescue vessels.

Many of Caley Ocean Systems’ orders come from overseas. So when contracts for made-to-order specialist equipment are agreed, it is usual for the customer to make staged payments. The customer, in turn, will ask for bank guarantees as payment protection against any risk of non-delivery. Performance bonds may also be required, to protect the buyer over the warranty period of the equipment, once it is delivered.

In December 2011, Caley Ocean Systems received a significant order to supply a-frames and winches to Hyundai Heavy Industries in South Korea. The contract called for Caley Ocean Systems to provide an up-front performance bond of 10% of the order value for a period of two years. The company also needed to provide a bank guarantee, valid for six months, to cover the value of the first stage payment it would receive from the buyer.

Caley Ocean Systems has multiple contracts requiring financing and the timing was such that meeting these obligations would have exceeded the value of its available credit lines. With the order pending and the Christmas holidays approaching, Caley’s Financial Controller, Jim Gebbie and RBS, the company’s bankers, were under pressure to find a solution. “Taking an overdraft facility or funding in the private insurance market were options we discussed, but which would have been costly” says Gebbie.

The solution

Caley Ocean Systems Ltd and RBS were able to work with the UK Government’s Export Credits Guarantee Department (ECGD). They arranged backing for the bond and the guarantee through the Bond Support Scheme.

The scheme provides partial guarantees to banks under a master bond agreement supporting UK exporters. With ECGD guaranteeing 50% of the value of the performance bond and 80% of the value of the advance payment, the shortfall could be covered within Caley Ocean Systems’ available credit lines. RBS was then able to issue the performance bond and bank guarantee in favour of the overseas buyer. Gebbie explained that “Normally the bank is able to sign off the performance bonds and guarantees we need quickly, and it took a little while to sort out the details of this new approach. But everyone worked together as a team to get this done and secure the contract.”

The results

For Caley Ocean Systems, the ECGD scheme meant access to affordable financing beyond its usual credit lines, enhanced working capital and a valuable export contract secured. Since performance bonds are rarely called, the scheme also offers a highly effective route for supporting UK companies to increase their exports.

Balance sheet efficiency: The company was able to provide financial guarantees affordably through using the new UK Export Finance bond scheme.

Working capital enhanced: The government-backed guarantees unlocked advance payments to cover the cost of manufacture.